Euro falls sharply as ECB vows to keep printing money until 2024

The euro fell below parity against the dollar on Thursday night after the European Central Bank (ECB) pledged to continue its money-printing program despite rising inflation.

The ECB raised interest rates by 0.75 percent to curb soaring prices, with inflation hitting 9.9 percent across the euro zone last month.

But it also said it would continue the quantitative easing (QE) program, which involves creating new money to buy bonds.

The euro fell about 1 percent against the dollar to lows of $0.9976 amid fears that inflation will remain elevated for longer, with the rise in interest rates serving to worsen a looming recession.

Christine Lagarde, President of the ECB, said: “Inflation remains far too high and will remain above target for an extended period of time.”

The second 0.75-point rise in interest rates takes the key deposit rate to 1.5 percent, the highest level since early 2009. Euro-zone inflation hit 9.9 percent in September, five times the ECB’s target.

The markets were already anticipating the sharp rise in borrowing costs. Even more surprisingly, the ECB announced it would take very limited action to begin shrinking its €8.8 trillion (£7.6 trillion) balance sheet.

The ECB pledged to keep creating money by reinvesting the principal payments on maturing bonds bought after the eurozone crisis and during Covid.

Bonds bought in the years after the euro crisis would be reinvested “for as long as necessary,” it said. The ECB also extended the duration of its Covid debt purchases “until at least the end of 2024”.

Cautious approach marks divergence from UK and US. The Federal Reserve has already started selling bonds back into the market and reversing QE, while the Bank of England will follow next week.

Unlike the last rate announcement, Christine Lagarde was excited to see how many more rate hikes were to come and acknowledged that the economy was already showing signs of slowing.

She said: “Economic activity in the euro area is likely to have slowed significantly in the third quarter.”

While the central bank is moving more slowly than in the US and UK, its decision to make borrowing more expensive will prove unpopular in several eurozone countries.

Leaders in Italy, France and Finland have all expressed doubts as to whether aggressive rate hikes are the right approach.

In the UK, the head of the Debt Management Office (DMO) warned this week that plans to start so-called quantitative tightening will drive up government borrowing costs.

Sir Robert Stheeman, the official in charge of the DMO, said: “We now have a situation where net issuance to the market will be the highest in history.

“As it usually plays out, you would expect it to be a matter of supply and demand. And if there is a lot of supply, then theoretically you have to let the price go down and the yields might have to go up for that to take off from the market at the clearing level.” Euro falls sharply as ECB vows to keep printing money until 2024

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